Unable to align vertices along a custom orientation
I don't see a problem in your file?

Just in case.. to flatten to a plane .. in 2.79..


Select 3 points which define the plane
CtrlAltSpace create the Custom Orientation
With pivot set to 'Active' as you have done, SZZ0
To check the result, F make a face out of your arc, select it, and set an orthographic view to look straight down its side by hitting ShiftNumpad 3